“Moving forward the CISG” Remarks By Assoc. Prof. Gary F. Bell

Outline: Three parts Moving forward For SG: Withdraw the article 95 reservation. For ASEAN: Use CISG for harmonisation of the law of sale – do not start from scratch. For the world: In the future, take into account Islamic law

1. SG should withdraw its article 95 reservation I have mentioned yesterday the reservation Singapore made under art. 95 and how it explains in part why there are few CISG cases in Singapore. Now I want to explain how the reservation works and why it is a bad idea to have it in Singapore.

1. SG should withdraw its article 95 reservation The CISG normally is applicable in two ways according to art. 1: Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State.

1. SG should withdraw its article 95 reservation First, Art. 1(1)(a) means that the CISG applies when parties to the contract are both from countries that are contracting states (state-parties to the CISG). Second, in the alternative (when at least one of the parties is not from a contracting state), Art. 1(1)(b) states that the CISG applies through the rules of Private International Law (PIL), i.e. choice of law or rules of conflicts. This means that if a seller is from Indonesia and a buyer from Malaysia, and they want the CISG to apply, normally they could choose Singapore law, and the CISG would apply through the rules of PIL – the CISG is part of Singapore law.

1. SG should withdraw its article 95 reservation Unfortunately however it is not so – if they want the CISG, the Indonesian and Malaysian parties cannot choose Singapore law and courts. Because they are from non-CISG countries, Singapore’s reservation prevents them from choosing the CISG by choosing Singapore law (at least as far as Singapore courts are concerned). Therefore in Singapore, effectively, art. 1 reads as follows: Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State.

1. SG should withdraw its article 95 reservation CISG Article 95 Any State may declare […] that it will not be bound by subparagraph (1)(b) of article 1 of this Convention. Sale of Goods Act (United Nations Convention) Act, Statutes of Singapore, Chapter 283A 3.— […] (2)  Sub-paragraph (1)(b) of Article 1 of the Convention shall not have the force of law in Singapore and accordingly the Convention will apply to contracts of sale of goods only between those parties whose places of business are in different States when the States are Contracting States. […]

1. SG should withdraw its article 95 reservation It is about reciprocity? People often refer to article 95 as the “reciprocity” reservation. This is misleading and inaccurate. First, reciprocity may make sense in matters of public international law, but why should reciprocity matter for a choice of law in a private law matter? Art. 1(1)(b) allows people to choose the law they want – for example the CISG and Singapore law – why not allow it?

1. SG should withdraw its article 95 reservation It is about reciprocity? Second, Singapore wants to be a “hub” for legal services, so why put restrictions on the law people can use in Singapore? The reservation prevents people from non-CISG countries including ASEAN countries from choosing the CISG by choosing SG law. It also prevents Singaporeans from using the CISG if they trade with a party who is from a non-CISG country. This goes directly against the principle of party autonomy in choice of law. Singapore is shooting itself in the foot: we say we want to attract people to resolve their disputes in Singapore, but we tell some of them that they cannot use the CISG to do so.

1. SG should withdraw its article 95 reservation It is about reciprocity? Changi airport is a hub because it does not insist on reciprocity: any airline can fly to and from Changi even if their country will not allow Singapore Airlines the same rights. If we want people to come to Singapore for legal service, you should not impose reciprocity. The new Singapore International Commercial Court with its judges from both civil and common law jurisdictions would be an ideal forum for deciding CISG issues, but the reservation means that any party from an ASEAN country will not be able to use the court if they want their contract to be governed by the CISG. They would have to go to courts in Australia, Japan, Korea etc. – jurisdictions that have not made this reservation.

1. SG should withdraw its article 95 reservation There are many other reasons why we should withdraw this reservation. I will simply refer you to an article I wrote some 10 years ago: Gary F. Bell, “Why Singapore Should Withdraw its Reservation to the United Nations Convention on Contracts for the International Sale of Goods (CISG)”, (2005) 9 Singapore Year Book of International Law 55.

1. SG should withdraw its article 95 reservation Following that article the AGC had a public consultation on the possibility of withdrawing the reservation, but nothing came of it. I assume that Singapore lawyers who are not keen on the CISG opposed the expansion of its application. In the meanwhile many countries have withdrawn their reservations to the CISG. I think the Government should look at this matter again, with the best interest of Singapore in mind. WITHDRAW THE RESERVATION, JUST DO IT!!!

2. We should use the CISG for harmonisation within ASEAN Should we harmonize ASEAN law of sales? After all, the Europeans have the “Principles of European Contract Law” and the “Common European Sales Law”. Some Asian academics are working on "Principles of Asian Civil/Commercial Law”. I think these regional harmonisation efforts are misguided – at least with respect to the law of sale. In my view, Asian laws of sale are not fundamentally different from the laws of sale of Europe, America and Africa. Therefore international, UNCITRAL-led efforts at harmonisation should be encouraged rather than regional ones.

2. We should use the CISG for harmonisation within ASEAN Does the CISG takes into account Asian law? Almost all Asian state laws of sale (not including Islamic law) are part of either the civil or the common law tradition. It is true that the CISG does not take into account Islamic law and that is problematic (I will come back to this). But otherwise by taking into account the civil and common law as well as socialist law, the CISG does harmonise Asian States' laws of sale

2. We should use the CISG for harmonisation within ASEAN The best proposal in my view is for ASEAN to adopt the CISG. Already East Asia has done so (China, Japan, South Korea for example). It is better for Singapore enterprises to have one international law of sale rather than have to deal with an ASEAN law, a European law, the CISG etc. Therefore: ASEAN should adopt the CISG!

3. Is the CISG incompatible with Islamic Law? Why should we care about Islamic law and the CISG? Because Singapore, Malaysia and Indonesia are all interested in Islamic Banking and Financing. It is a growing business: estimated at USD 1.6 trillion by 2012. It is estimated that about 75% of Islamic financing is done through murabaha contracts, which are contracts for the sale of goods. Many of these sales are international and could potentially be governed by the CISG. Is the CISG compatible with the murabaha contract in Islamic Law? It is not.

3. Is the CISG incompatible with Islamic Law? The CISG took into account civil, common and socialist law but it did not take into account Islamic law. In the 70s when the CISG was being negotiated, there was very little Islamic financing and therefore very few sales of goods were governed by Islamic law. In any event. very few majority-Muslim states (with the notable exception of Turkey and Egypt) are parties to the CISG. But Islamic finance is growing and is usually based on the sale of goods, yet no one is looking at the compatibility of the CISG with Islamic law.

3. Is the CISG incompatible with Islamic Law? The murabaha contract How does the murabaha contract work? Very briefly – too briefly for accuracy – here is how it works (I am not an Islamic law scholar so apologies for any shortcoming). A financing institution buys goods at a certain price and then resells them at a higher price which includes the price it paid for the goods, its expenses, plus a mark-up (financing costs), all of which must be disclosed to the buyer. The buyer will pay the price by instalment overtime.

3. Is the CISG incompatible with Islamic Law? The murabaha contract There is no interest – only a higher price paid over time Of course the criticism can be that this is interest in disguise. However on the other hand the bank must own the goods for a while and take the associated risk, so it is not purely a loan with disguised interest. There are other ways of doing this (double sale for example, allowed by some schools of Islamic law) but what I just described will suffice for our purposes.

3. Is the CISG incompatible with Islamic Law? Is the murabaha contract of sale compatible with the CISG? There are many conditions for validity in Islamic contract law generally and in the murabaha contract in particular that are incompatible with the CISG: The CISG allows for interest (art. 78) which is prohibited by Islamic law. The CISG allows the price to be fixed by a third party after the formation of the contract (art. 14 and 55) – Islamic law prohibits uncertainty in price.

3. Is the CISG incompatible with Islamic Law? [conditions – continued]: The CISG allows the selling of future or undetermined goods (art. 31(b) and 32(1)) something which cannot be done in Islamic law. Arguably the CISG does not explicitly impose an obligation to act in good faith (although some scholars believe it does so implicitly) but such an obligation is foundational in Islamic law, including in the murabaha contract. Any non-conformity of the goods can lead to a murabaha contract being avoided, but the CISG requires the non-conformity to amount to a fundamental breach (art 49(1)(a) and 25).

3. Is the CISG incompatible with Islamic Law? Therefore, the CISG should be excluded for any sales contract for the purpose of Islamic Financing. That is not the end of the world: diversity and choice of laws are good in my view. But people in this region should know to exclude the CISG for sales for the purpose of Islamic Financing. Hopefully in the future, more Muslim-majority countries will participate in the deliberation of UNCITRAL so that Islamic law may be taken into account in future UNCITRAL instruments when relevant.

3. Is the CISG incompatible with Islamic Law? For more info see: Gary F. Bell, “New challenges for the uniformisation of laws: How the CISG is challenged by “Asian values” and Islamic law" in Ingeborg Schwenzer and Lisa Spagnolo, ed., Towards Uniformity: The 2nd Annual MAA Schlechtriem CISG Conference, International Commerce and Arbitration Series, vol. 8, at 11‑29 (The Hague: Eleven International Publishing, 2011).

Conclusion Moving forward For SG: Withdraw the article 95 reservation. For ASEAN: Use CISG for harmonisation of law of sale – do not start from scratch. For the world: In the future, take into account Islamic law

Thank you for your attention.